Hats off to Kate Kay who presents a balanced, informative and engaging view of Commission Junction’s Link Management Initiative without eliminating the good stuff—the different perspectives on CJ’s announcement.  Kate’s piece is worth a read as Commission Junction denies that it’s caving to pressure from advertisers:

Pacifying advertisers and search engines by eliminating link farms is “not what’s driving [the Link Management Initiative] at all,” countered Frank Gerstenderger.  Instead, he insisted, because the JavaScript links will enable dynamic alterations, the changeover will lessen the number of future changes for affiliates.

An interesting position, indeed, as such technology is a throwback to 2000 and has largely been a low-value function from the advertisers’ perspective.  Historically, few advertisers actually use it or want to use it.  Indeed, this could change and meshes well with meeting advertisers increased desire to have more control over affiliates and a the good old fashioned “house cleaning” (of affiliates) that is well under-way.

As for CJ’s comments on the house cleaning? 

As for the potential loss of affiliates due to the switch, he estimated, “I don’t think we’ll lose anything significant.”

Ouch.

Leading Minds & Advertisers Speak Out
In an effort to get some perspective from advertisers, I’m convening a few leading minds in the online performance advertising business today so as to discuss the implications of what we know about Commission Junction’s recent link structure ("Link Management Initiative") announcement.  The group consists of experienced affiliate managers and a prominent affiliate who promises to, quickly, get at the heart of the situation (get the details from the affiliate side).  The audio program and transcripts will be published here on an ASAP basis.

Commentary
Briefly, a quick bit of commentary on my disappointment in our industry.  Dramatic change seems to be leading to new levels of denial (that this is a significant shift) and venom in a time where it’s nothing but distracting.  Talking about when the links will actually switch is interesting but distracting from what I wish to discuss—a serious power shift that benefits some (advertisers for sure) and punishes others (certain kinds of affiliates). 

Specifically, some peers suggest I’m dangerously presumptuous.  You would think that they might make sure that I don’t actually know something before making such accusations—presuming (ironically) but this is not the case. 

Rather than pointing at people who accuse me of being presumptuous, un-knowing, having a secret agenda and such I will point out something that seems obvious yet is worth stating plainly:  Each of us is an expert in something.  Let’s try to focus on that and play nicey-nice in the sandbox together.

Time + a double americano always yields perspective.  Buzz from yesterday’s announcement seems to be around the tech aspects of Valueclick’s Commission Junction (CJ) unit, I aim to provide the business-focused skinny.

In a nutshell, this is a clear move away from mom-and-pop style affiliate marketing… and toward a more sophisticated, controlled model. 

What This Means for CJ Advertisers
CJ has decided that enough of its biggest advertisers care seriously about having broad affiliate control and restricting datafeed affiliates within the realm of search so as to warrant elimination of a good number of affiliates—the crapsite.com’s that tend to mangle product images and irritate the Sony’s and Nike’s of the world.  They also (and this is key) irritate Google to no end. 

For years now this issue has been burning among retailers as they’ve come under increasing pressure from OEM (original equipment manufacturer) brands to “clean up” their distribution network (affiliates).  As OEM brands have, themselves, explored selling direct they’ve explored search engines… and noticed that affiliates have flooded the market with their products.  Pricing, product description, product images… much of what they see is out of date and not within corporate specifications and, hence, stresses relationships with retailers who turned affiliates loose within search in an effort to sell, sell, sell.  Until now, retailers had no recourse whatsoever beyond turning off affiliate accounts.  The World Wide Web is a very permanent place with links and product information remaining intact.

What This Means for CJ / Affiliate Networks
This is a BIG win for Commission Junction and, in fact, all affiliate networks that cater to clients suffering from the above described problem.  CJ is eliminating most of the existing poorly-executed affiliate sites AND pleasing Google.  Two birds, one stone.  Quite literally this happens overnight in June as the HTML links go dark.  The new network-provided Java script links give advertisers total control in the future if affiliates mis-behave.  Wow.  I think the network just added value.  I’ll sit down and shut up now! 

What This Means for Affiliates
Those I’ve spoken with suggest this means nearly absolutely nothing.  This change is designed to frustrate small mom-and-pop affiliates that networks like CJ have traditionally enjoyed offering to advertisers.  Tune in to communities like Abestweb.com and others and you’ll hear what CJ hoped and expected playing out—affiliates screaming bloody murder, promising to leave, actually taking down links in protest and flocking to companies like Shareasale, Kowabunga and others where affiliate marketing remains, as they see it, pure and free. 

So far affiliates are doing exactly what they should be doing.  Nothing if they’re valued partners to retailers; leaving in droves if they’re amateurs.

What This Means for the Industry
Starting in June, sun begins to set on the Glory Days of affiliate marketing—wherein any fool can form a partnership with a major name retailer, place ski gear from The North Face or plasma screens from Hitatchi on their $1.99 per month Web host.  Nail after nail is being driven into the coffin of “affiliate marketing Circa 1997.” Need more evidence?  Google has turned up the heat and I’m not talking about BigDaddy.  And I quote (via Peter Figueredo

“If your site participates in an affiliate program, make sure that your site adds value. Provide unique and relevant content that gives users a reason to visit your site first.  If a site doesn’t meet our quality guidelines, it may be blocked from the index.”

Kowabunga, Shareasale, LinkConnector, DirectTrack and even CJ’s arch enemy Azoogleads… they all stand to gain affiliates but it’s the quality of affiliates that matters here in my opinion.  For retailers and major name marketers these affiliates, and their poorly executed tactics, have proven nearly worthless… yet for smaller names perhaps not.  This is the theory that many of my peers put forward yet I question their value based on what they’ve already demonstrated—a lack of skill-based execution. 

In short, if you can’t push Star Wars DVD’s well enough for Walmart.com can you be expected to push Gaggia espresso machines for WholeLatteLove.com?

All of this said, this is bound to be frightening for advertisers at varying degrees.  I also wonder if CJ going to clamp down on paid search affiliates or not.  I sense the answer to that is mostly no as too much revenue flows through them without much retailer resistance.  A lot of revenue does not flow through sites that have used product data feeds and executed poorly.  They’re a PR problem for the networks and an OEM problem for the retailers. 

The world’s largest affiliate network will soon take back control of all but a scant few of its advertisers’ affiliate links and is positioning to run from the affiliate marketing status quo beginning in June of this year.  Affiliate networks are offically circling the wagons after becoming nearly completely reliant on search marketing (read: Google).  Commission Junction, Linkshare and others are coming under increasing pressure from advertisers to control affiliates—and their hands are now forced.  Change is in the wind.

Chaos on the Boards
Pick your affiliate bulletin board forum and tune in to the drama as affiliates are thrown into, what seems to be, mass hysteria this morning.  This (CJ’s handing out Java script rather than URL links to affiliates) can mean only one thing: change.

Even affiliate-marketing die-hards like Scott Jangro are hard pressed to turn the frown upside down today.  Jangro is forced to admit…

“Let’s face it. The Internet has become overrun by sites mass-produced to make money. Affiliate marketing has played no small part in this.... this may be a move by Commission Junction to clean up the streets of trash with a big green ‘CJ’ on it. The more affiliate marketers piss off the search engines, the larger the bulls-eye becomes on CJ’s backside. JavaScript links may, at the very least, slow and even reverse the proliferation of affiliate links, masquerading as content, filling up the search engines and forcing them to clean it up. My gut feeling is that this is the big one. Self-preservation is a strong motivator.”

Jangro’s perspective is dead-on and worth listening to…

“There’s a rule-of-thumb I like to go by: ‘If you take the affiliate links off of your website, what’s left?’ If the answer is, ‘not much’, then your site isn’t likely to be considered worthy of ranking well in search engines (lately, this includes paid-search as well). CJ and other affiliate networks stand a much better chance by keeping their code out of the search engines than to leave it to the search engines to decide what gets obliterated.”

Search = Affiliate Marketing
What’s this all about?  As I’ve said for many years now: Search.  Search IS affiliate marketing, folks.  The rest is tollway change.

Most of this online marketing strategy is NOT about tapping into something that affiliates have which marketers do not—it’s about leveraging what affiliates do; and they do search.  But don’t marketers do that now?  Heh, heh… indeed they do.

It’s important to understand:
1) Affiliates use of all forms of search marketing + product data feeds has proven to = big problems for retailers who are under fire from their manufacturers’ (OEM) brands as they’ve noticed sloppy affiliate practices reflecting poorly on their brand

2) Marketers do search now too and if they don’t they want to… and they want control and accountability from either their internal team or their outsourced agency (affiliates offer little of either)

Advertisers Speak
Says Chuck Hamrick of Backcountry.com (a marketer that was once bitten by search affiliates and is now in complete retreat from allowing affiliates to run wild in search) via Revenews…

“Google has been moving down the path of penalizing affiliate links and this could be a way to get around that. We are advising our affiliates to use a ‘No Follow’ tag in thier standard links. This will cause the search engines to disregard the links when indexing a page...”

Google IS The Enemy
As former Linkshare CEO Steven Messer pointed out (in as many words) at the Spring Affiliate Summit 2005 event, Google is both the enabler (of affiliate marketing’s overall success) and the enemy.  Google, Yahoo and MSN are all, slowly but surely, cozying up to advertisers—bypassing all middlemen AND offering a new degree of advertising flexibility.  What’s more, Google is even willing to help advertisers break its own rules—in effect enforcing rules among affiliates but not advertisers. 

More headaches for networks include affiliates rising up and biting them in the rump—competing with them by paying affiliates ahead of schedule and executing massive media arbitrage across legitimate and illegitimate sources (adware, spam).  Affiliate networks are also threatened by anti-virus, anti-adware companies such as Symantec and FaceTime as they enable users to block affiliate-related ads and remove adware from their computers. 

Fins to the Left, Fins to the Right
Life is further complicated by marketers spending less on affiliate programs and more on search(why? lack of media transparency is one reason)... and that’s a problem for companies like CJ’s ValueClick (NASAQ: VCLK) who recently announced slowing revenue growth and margins.  Mix in the increasing popularity of solutions like Mercent and Channel Advisor and you can see that affiliate marketing is poised for big change.

Big Changes Ahead: Bet Your Life On It
Big changes lie ahead for companies like ValueClick and they’re the big fish here for sure.  While the company’s CJ unit seems embattled they are fighting back with this new change—at the expense of small business-based affiliates who engage in media arbitrage.  But this leads us to ask “what’s next?” for ValueClick?  Why would they switch-off a revenue stream that has proven so vital to their success and is an industry darling with retailers? 

The writing is clearly on the wall… and, no, these walls are not for public viewing.  Critical mass is nearly upon affiliate networks—wherein they can see a not-so-distant future that doesn’t look as rosy if they continue to cling to the “affiliate marketing stauts quo” much longer.

As I see it, we should look to the departure of CJ’s, Todd Crawford and the blown aQuantive - ValueClick deal for answers. 

What started as a conversation about infiltrating a real life gang of Internet-based criminals turned into a frightening discussion on cost-per-click fraud. 

I recently interviewed Spyware Warriors Wayne Porter and Chris Boyd and am making a full transcript available below. 

As Google and Yahoo each continue to draw fire around cost-per-click (CPC) and advertising distribution fraud the world is waking up to the realities of performance-based advertising gone wild—fraud style.  In short, paying on a “delivered visitor” basis is looking, increasingly, less attractive to advertisers when what is being delivered is nearly, or completely, worthless.

Within weeks my original interview with Boyd and Porter confirmation of other massive fraud-machines—so-called CPC “botnets” (or legions of commendeered computers)—surfaced. 

TRANSCRIPT: SPYWARE WARRIORS - THE DIGITAL UNDERGROUND

Jeff Molander:  Hello, this is Jeff Molander and welcome to part two of my candid chat with Wayne Porter and Chris Boyd. Both of FaceTime Communications.

When we left off, Porter was just beginning to scratch the surface on potential wider e commerce implications of botnets. That is, networks of zombie machines used to execute attacks on networks and, of course, steal financial information right off the infected users’ computer screens.

Porter’s thrust seemed to be that consumers are already starting to throw hands in the air, and walk away from using the Web altogether. Even more alarming, advertisers themselves, he says, are playing a role in all of this. Given that they often participate in a variety of performance based media schemes like “pay per click,” “pay per lead,” and “pay per sale” affiliate programs.

Sometimes these advertising campaigns are leveraged by the thieves running botnets as a revenue generation tool. In essence, advertisers are funding a new breed of internet criminal. So I asked Porter the obvious question: Why would a big-branded advertiser get involved in funding criminals?

Wayne Porter:  Well, I think some of it is ignorance, some of it is negligence, and some of it is a pressure to meet the numbers.

Jeff Molander:  Okay, fair enough, that’s why, but how? Is it affiliate programs?

Wayne Porter:  No, actually, it’s not affiliate programs, a lot of fault gets laid at the affiliate industry, but they sort of help at the highest form of standard. A lot of involves PPCSE (Pay Per Click Search Engines), pay-per-click scams, where, you know, they’re simply shuttling laundering traffic, or, you know, that’s where I think the concentration of it has moved.

The mobile industry, there’s still problems there, but as you know from the (affiliate network) Summit in 2000 in New York… it was the first industry to really recognize it as a problem...and there are some rules of engagement. Unfortunately, you know, it’s a complex issue, I mean, for affiliate manager, or e commerce manager, or a VP of e-commerce, this is a very specialized skill set. So, you know, go do a media buy. Here’s X amount of dollars. And they go do a media buy, and they do that media buy through a broker, and you know how it runs. And it goes through another broker, and that broker does a series of buys across CPA or CPC or cost per lead networks, and these sites have not been vetted well.

The next thing you know, these big brands are facilitating this kind of stuff.

Jeff Molander:  So how does this kind of stuff intersect with a botnet? Or does it?

Wayne Porter:  Well sure, sure, once you have a botnet, you basically have control of the user’s PC, so you can do what you want, I mean, you can

Jeff Molander:  Yes, I’m clear on that, but what I’m not clear on is how does participating in an affiliate program at some point possibly get you as an advertiser involved in one of these botnets.

If I’m an advertiser out there, and I’m learning about all this scary stuff that gets on a consumer’s PC, is there a connection between an advertiser, say, participating in a cost per action or a cost per click type of environment and a botnet? What’s the connection between the two?

Somehow getting people to my Website, and suddenly you’re saying it’s intertwined with these botnets that are designed to seek and destroy, and they’re also designed to take money from the advertiser, sometimes due money and sometimes undue money.

Chris Boyd: I mean, a lot of advertising networks will get caught up in botnets when these the hackers start pushing and it installs and installs onto the infected PCs. And there is a tendency that I know from talking to a lot of these guys, there’s no sort of subtlety in the way they will install the adware, they will just hammer it on a few hundred or thousand PCs in a very short space of time, it’s only the guys at the high end of the botnets though that will actually program the bots in such a way that they will install the adware that just about carries the money on a timed basis and also the fact that certain advertisers and companies out there will check to see the frequency that these are being installed and they really should notice if they log a couple hundred installs over a ten or twenty second period, something fishy is potentially going on there.

But by and large the guys running the botnets will just sign up to various networks, programs, what have you, and just hammering installs, and it’s only generally when the botnet is actually caught, busted, dragged into public view, that all the dirty laundry then comes out.

And everybody runs around saying… well why didn’t this X Y and Z company realize that they were exploiting the network in such a way, which we’ve said time and time again.

Wayne Porter:  Jeff, I think the question that you’re getting at is, does the deal structure place or is that part of the risk? Obviously yes. If it’s a cost per sale type of program, you’re fairly insulated, although, theoretically, you could program a machine at night to go out and make purchases, you know, fraudulent purchases, and ship them that doesn’t really make good sense. Then you go to the cost per lead structure, where you have the details, you program the machines to go to a site and auto fill the form and submit it. And because they’re coming from different IP addresses, from different times, it can look like a perfectly legitimate lead. The user has no idea.

So, cost per sale is obviously the most insulated, cost per lead you’re going to see more potential for risk, and then cost per click you’re going to see the highest increase well, I’m sorry, cost for impression, you’re going to see the biggest risk. All right, so that’s scenario one, that’s a direct interaction with the merchant. Then you have affiliates who may be doing media buys through some of this illegitimate software, and, you know, transferring the customer that way, that’s another area of exposure.

Again, in that person’s mind the last thing they see is that pop-up, they see that brand, name, you know, or, I was reading over some of the Direct Revenue documents that are starting to surface where they had, I think it was, forty five seconds was the popup speed, and they realized users were getting frustrated so they turned the timing down to something like two minutes, but they saw a huge money drop so they cranked it back up to 45 seconds. I mean, imagine getting a popup every forty five seconds while you surf! Who do they blame? They blame who they see in the popup they’re going to blame the merchant, because as far as they’re concerned, they’re the one doing the advertising, so it really impacts their brand.

Jeff Molander:  Hmmmm, a little while ago, you were talking, Wayne, about click fraud… cost per click advertising.  I’m really intrigued by where you’re going with this, because what you’re talking about is something I haven’t read about anywhere before as it relates to Google or Yahoo or any of the major cost per click search engines out there, do botnets somehow intersect with cost per click advertising, and is this a new click fraud concern that you’re pointing to here?

Wayne Porter:  I don’t have a specific example off hand, but if you control the PC, you can write scripts to emulate browsing and clicking, and you know, all the major networks are going to tell you, “we have these sophisticated anti fraud mechanisms in place.” And they do have some anti fraud mechanisms in place, but I don’t think that they’re getting it at all. I mean, definitely not.

Google has even publicly said that this is a risk factor in our business, and just now, I think I blogged about this a year and a half ago, about the rise of the fourth party, you know, we’re seeing firms emerge, auditing firms, who are coming in and looking and analyzing the data, and analyzing, you know, click speed, and other various factors that can tip you off that this is fraud. So with a botnet, it becomes even more complex, because it’s, we’re talking, the botnet may span the globe. So it really looks like legitimate user action, it just depends on how sophisticated the zombie master is in his plans. Which leads me into another alarming trend that I’ve seen, you know, first we’ve seen, “let’s build massive powerful botnets of 200, 300 thousand machines.”

The word on the street is, a lot of these zombie masters are keeping their botnets small, you know, 25,000 machines, 15,000 machines, can keep you in a comfortable lifestyle… living, and have such a low footprint it’s probably not going to be detected. I mean, we’ve seen that, I believe, like, in one fraud that was perpetrated in an affiliate network, they set up hundreds of different accounts, so the money was filtering through all these different accounts. And, you know, myself, having been in on the back end of an affiliate program, you don’t tend to pay attention to these small amounts of money, you’re really focused on your big hitters, and the big amount of money flowing through. So they sort of launder it through a series of accounts. So they’re getting to they’re quite sophisticated, and they’re quite smart.

With a botnet under your control, it’s spread across the globe, so it looks like legitimate traffic. You can check the IP address, and it looks like a legitimate user came and interacted with your site or interacted with the click. And even more alarming -now they’re building these smaller botnets which are designed to evade detection, but now they’re getting smart, because zombie masters will actually steal botnets away from each other.

They’re actually patching the user’s machines, they’re actually fixing the user’s machines so they can’t be stolen away by another botnet. So they keep firm control over their slave.

Jeff Molander:  Absolutely unbelievable.

Wayne Porter:  It’s believable. It’s unfortunately a reality, you know, we’re just now, it’s now sort of bubbling to the top, and then you know, you throw rootkits in there, and adware, and spyware, and you have this noxious brew that’s really dangerous to the consumer and it’s really dangerous to the enterprise. You’re talking loss of productivity, you’re talking trade secrets, customer data the potential for loss is staggering. And it’s a complex issue.

Jeff Molander:  I don’t know if you realize it, Wayne, but a little while ago you described a whole new level of the click fraud. As you just mentioned, Google does recognize click fraud, rather vaguely so, but do advertisers recognize click fraud? I’ve written on it in the past, I think they look at it, many of them, not all of them, look at it as a cost of doing business.

Do advertisers even realize that they have a problem potentially larger than people being hired out in India or some other country in Asia perhaps, to do manual click fraud, where there are rooms full of people clicking on ads do advertisers realize that this could be dramatically more serious than that?

Wayne Porter:  Right, I mean, we talk about click fraud networks. And you know, those things, like, in the affiliate networks, are usually shut down fast.

Usually what happens is one individual discovers a way to scam, and he passes it to his buddies, and they see it all come from this concentration of IP address, and how they’ll catch their signature and one piece of fraud might get through, but they’ll catch the rest.

You know, it’s kind of funny, because affiliate networks, which really, they’re sort of held to a higher standard in some ways than the cost per click, the large affiliate, I’m sorry, the large search engines. And then you get into… when you touch base on the syndication partners, that’s a whole other problem we touched upon with the agency approach, where you have multiple layers of people, I mean there’s just a Web of people, offers are brokered, where, you know, I’ll take my ten percent and it’s cut down, he takes his ten percent and he takes his spread, and then, so, it’s sort of ironic, you would think that the internet would make e commerce relationships more efficient, but in reality it’s made them less efficient, and actually quite sprawling, to the point where it’s dangerous, where you don’t know where your brand is ending up.

I think I’ve blogged on the Save Toby site, where the guy is threatening to ransom the rabbit, he’s going to kill the rabbit, if by X date, he doesn’t get this amount of money. And (on the site) there’s a big Starbucks ad. And so I emailed Starbucks, I’m like, you know, “do you endorse the ransoming of rabbits?” You know? Starbucks pretty much blew it off but it was a large media buy, they did across the network, and had no idea...you know, I do not think that Starbucks really wanted to be on a site where a guy is threatening to execute and eat a rabbit.

We had this big disconnect. Botnets are just another danger out there, and yes, I definitely believe that botnets can be used for pay per click fraud. I don’t have any concrete examples I can give you. But if I can control your machine, I can make your machine do whatever I want to do. Prime example let’s go back to all advantage. You remember that Jeff? The...pay per surf scheme.

Jeff Molander:  Vaguely, I do.

Wayne Porter:  Very quickly, the value proposition was, you have the Alldvantage bar, and you watch ads, and you’re paid a certain amount. And very quickly, the hacker community responded, and it was called, “get paid to sleep,” because they wrote sophisticated scripts to emulate surfing activity that looked very natural, that looked completely natural.

There’s no reason to believe that with a compromised machine, that you couldn’t do this to a consumer, especially if you want to do it in the wee hours of the morning, when people probably aren’t awake or they’re probably not seeing it. That’s one way we discovered that they were giving their technology, that was so safe and secure, they said but what was happening was they were using the sim keys attack, where the unit would pop up for a fraction of a second, and the user was glancing away from the screen, or if it was done at 3 AM, they never saw it installed on their machine. And they’re SO sophisticated. We have downloaded malware and let computers sit overnight, and we’ve seen the malware install 12 hours later, 24 hours later.

So you’re infected, you’re walking around with this infection, it doesn’t start doing its damage until hours later; and you have no idea; none whatsoever.

Jeff Molander:  Well unfortunately we’re just about out of time here, but thank you guys both so much for taking the time to chat. And I hear there is a new Spywareguide.com blog of some sort, is that right?

Wayne Porter:  That’s correct, my e commerce manager Michael informed me as my reward for being an MVP is I’m not going to be in charge of our global blogging initiative.  I was hoping for a salary raise, so I got my work. But, it’s actually very exciting, we are re-launching spyware guide very shortly, and it’s kind of tough, because we have a broad variety of people in different diverse businesses, and I’m fortunate that I have a broad variety of people who are dedicated toward one thing.

The problem is that their average IQ is about 140, so they’re really smart guys, so we plan to explore a number to choose from, peer to peer, which we consider a greynet, instant messaging, which, again, we see these all as greynets. They’re not all necessarily bad, in every case, and are not necessarily good. It just depends on your situation.

The same with shopping applications; I mean if you really want that shopping application, and as long as legal means are obtained to get it, you can have it. But, if you’re on a corporate network, they tell us quite plainly, we don’t want shopping applications on our network, period that’s a productivity impact tool, or that’s an information leakage tool. So, you know, we are covering the gra net sphere, IM, peer to peer, how we conduct research, specific research… that we’re doing.

A little bit of the personal facts about our researchers, that’s another exciting thing: We have guys from Bangalore, India, from U.K., from Belgium, from West Virginia, so we have a really diverse crew of very, very intelligent people looking at a wide variety of problems and angles and talking about what we see.

Jeff Molander:  And you guys do see some really interesting things, and you I know can’t talk too much about some things you see that you turn over to Federal authorities for further investigation, and that’s led to some really big news actually, with some things looking like they’re pointing to legitimate Middle East cyber terrorism, and I won’t ask you to talk about that, but I will ask you to maybe share something that you saw that was, I don’t know, unexpected or humorous or interesting, that’s colorful.

Wayne Porter:  Whenever we see something we give it to the proper authorities and that’s all I can say. There was the Middle Eastern botnet bust, and it was a sensitive matter, and I can’t really say what we do, except that we’re a responsible company, and when we see things going on, we report them to the appropriate authorities. We really uncovered some shocking things, some things that we expected and some things that we didn’t expect and some things that were completely bizarre, like, Chris, the Mr. Bean movies.

Chris Boyd:  Yeah, we found the hackers out in the Middle East who were installing their own version of BitTorrent, which is a method of sharing large files, in a very fast manner they basically created their own version of BitTorrent, they were installing that on hacked PCs, and piping lots of Mr. Bean movies to the infected PCs so....

Wayne Porter:  Yeah, I don’t know what kind of statement that was meant to make, Jeff, or if that was just sort of a “we can do it” more than likely it’s a probe to see how far we can go. If we can upload our own mangled version of BitTorrent and give you Mr. Bean movies, who knows next thing you know we can give you propaganda, or we can take over your PC, or we can execute a bundled attack. There’s just no limit to the problems that can occur.

Jeff Molander: Well all right guys, we’re at the end, I really appreciate your time. Again, I’m really hoping, I’m fantasizing, that we can do this again sometime, because you guys are just involved in some really interesting, fascinating stuff, I don’t know what other words to use. Hope we can do this again, and really, again, I appreciate your time. Thanks.

Chris Boyd:  Thank you, Jeff.

Jeff Molander:  And I hope that YOU have enjoyed this program. Feedback is always welcomed to Jeff at Thoughtshapers.com. And if you’re interested in becoming alerted to future podcasts, just send me an email. Again, that’s .com. Our archives can always be found at Thoughtshapers.com/podcasts. 

Yahoo’s new advertising model (in beta and code named “Project Panama") emulates Google… but that’s not even interesting when you consider what the future holds for BOTH Web advertising Goliaths.  A quick study of behind-the-scenes activities and whispers reveals the real story—how ad position preference will soon dominate the scene, revolutionize the way ads are sold on search engines and allow both companies to wow Wall Street with, for the first time, pre-booked revenue.

Position preference is just what it sounds like.  It’s an option giving advertisers the ability to buy paid search positioning—by bypassing the “relevance + click through frequency” (Google’s) scoring algorithm that is used to present ads currently. 

Already this year, Google has announced more changes to its AdWords program.  Specifically, Google’s AdWords ad serving system will designate every single search as “commercial” and “non-commercial” and serve ads accordingly… and that, they say, means LESS ads overall.  The company is REDUCING inventory.  Sound crazy?  Not when you consider position preference it’s not; rather, it’s genius.

Why will Google and Yahoo continue to send their ad billings and, hence, valuations upward using position preference? 

1) Position preference will not be auctioned in the open market.  It will be auctioned only among “preferred” status advertisers. 

2) My sources indicate that most “affiliates” and “aggregators” (of traffic/users) will be downgraded and not given access to position preference inventory.  Interestingly, major shopping comparison engines will be grouped with branded retailers and given rights to primo inventory.

Financially speaking this takes Google and Yahoo into a situation where it can pre-sell the best ad inventory to either direct-response or brand-and-reach focused advertisers.  On the books (and books are important to companies that issue guidance in volatile markets) that looks mighty fine… it reduces risk significantly and makes for fantastic Q4 revenue projection confidence. 

That’s right, Anne Holland says affiliate marketing spending is taking a marked downturn… print it!

I’ve been taking quite a beating by industry colleagues—even the affiliate marketing’s biggest name, Shawn Collins, for years now based on my repeatedly insisting that retailers are pro-actively shrinking their affiliate marketing programs while concurrently ratcheting up search marketing spending.  I’ve been accused of everything from making things up to consulting with a minority of clients that aren’t representative of the industry as a whole.  It even got so ugly (truthful?) at Revenews that they deleted all the comments!

I’ve had an occasional opportunity to bring forward people like Jeff Nienaber, Lisa Papageras and John Hoge to back up my statements but that’s not been enough for the likes of Shawn Collins or David Lewis. Even InternetStockBlog.com’s David Jackson has suggested that affiliate marketing audits aren’t *really* becoming widespread since I’m not providing “any data to back up the claim.”

Suggesting that ValueClick’s Commission Junction numbers aren’t being boosted… “enhanced”... “massaged”... by VCLK’s purchase of inkjet retailers isn’t enough?

Even bigger than Sendtec CEO’s acknowledgment of the clash between affiliates and marketers inside search MarketingSherpa’s Anne Holland and Stefan Tornquist are jumping on the bandwagon. 

According to Holland… one of the biggest, most respected names in marketing research… solutions like (surprise surprise!) Mercent and ChannelAdvisor are quickly capturing marketer’s dollars as they embrace SKU-level, rules-based PPC management.  Big whoop right?  Wrong.

While thumbing through her entire set of 2005 research and data, Holland noticed…

“... folks that were super, super heavy search marketers… tended to be spending a lot less on affiliate marketing. In fact, they were spending about half what the average marketer was spending on affiliate marketing.

So it seemed like if you ratcheted up your search marketing it sort meant you were taking away affiliate marketing from the affiliates.  You were in a way taking it in-house. So that has real implications for the future of affiliate marketing.”

Tornquist responds…

“That’s absolutely right. And we’ve seen other data to corroborate that. That retail marketers, especially while the model of a few years a go might have been to use their affiliates essentially as an outsourced search provider because so many affiliates are quite advanced in using search marketing so retailers were willing to allow them to use trademarked and branded terms.

And really with the incredible growth in search and so much research coming out on the efficacy. I think a lot of marketers saw those sales as really being redundant.”

Anne may have shown up at Affiliate Summit to give a rosy keynote… complete with with hugs, kisses and a not so subtle recognition of the industry’s feeling relatively under-appreciated (not so sexy since search marketing showed up)... but she’s not going to publish research that doesn’t reflect truths about what’s going on. 

For the retail segment, affiliate marketing IS, in fact, shrinking.